These issues have come up before the apex court in a batch of petitions filed by income tax department challenging a Delhi High Court order which held that Eli Lilly & Company (India) Pvt Ltd was not liable to pay tax on salaries paid to its expatriate employees by its foreign partner outside India.

Eli Lilly India is a joint venture between domestic drug maker Ranbaxy Laboratories [Get Quote] Netherlands-based Eli Lilly. A bench headed by Justice H K Sema has admitted the petitions challenging the High Court's decision to upheld the Income Tax Appellate Tribunal's order.

The Tribunal had ruled that Eli Lilly India need not pay tax on salaries given to its expatriates by a different entity outside India. It had further held that under Section 191 of Income Tax Act, the expatriates were liable to pay tax directly where tax at source (TDS) had not been deducted.

The income tax authorities had sought levy of around Rs 4.96 crore (Rs 49.6 million) on the ground that the joint venture had failed to deduct TDS on salaries paid abroad to its four expatriate employees who have been on its roll since its inception.

The I-T department has contended that the job offer to the employees through the JV Board indicated that only a part of their gross salary was paid by the assessee in India and the major part was paid by the foreign partner outside India despite employees not performing any work outside the country.

It was also found that the JV was deducting TDS only from the part of the salary paid in India, it said. The income tax department while partly allowing the appeal of the company had held that the income earned by expatriate employees abroad was taxable in India.

However, it had ruled that no tax can be demanded from Eli Lilly & Company as the expatriate employers had paid advance tax on the total income, including the salary received abroad, earned by them.